Tuesday, June 14, 2011

Procyclical policy?

The regulatory authorities lowered capital requirements during the boom and now want to raise them during the bust. A reaction:
Bove points out that the proposal, which he dubs absurd, would “effectively take U.S. banks out of the financial system for an extended period. It would have a similar impact on the economy as the Fed’s two reserve ratio increases in 1937 which plunged the United States back into depression.”

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